Archive for the ‘housing’ Category

A Bill of Good Things to Have

Posted on: February 10th, 2012 by admin No Comments

by Barry Fagin

Mr. President:

What a pleasure to see your byline on The Gazette’s opinion pages. Of course, you must have had your people write that column on your “Housing Bill of Rights.” But you’re a busy man; that’s completely excusable.

What is less excusable is the idea that what a dozen previous administrations of both parties have screwed up, your administration can somehow fix.

Were I less cynical, I might think you’re just throwing homeowners a bag of goodies, in hopes that they’ll vote for you. True, I’m a homeowner, and proposing legislation that benefits me is at least superficially appealing. But my vote is not bought so cheaply. I know there’s always a catch.

The housing bubble didn’t simply happen. It was the direct and predictable result of the expansion of the money supply and artificially low interest rates a few years before, based on the same “stimulus” ideas your party continues to embrace.

Making things worse were the legions of rules, regulations, subsidies and distortions of lending and housing markets promulgated through HUD, Freddie Mac, and Fannie Mae. Why did you not mention them?

Have you forgotten your efforts and those of your party to subsidize mortgages to buyers who otherwise could not qualify for them? Have you forgotten the rules, regulations and mandates you and your party imposed on banks? Have you forgotten that the reason banks foreclose is to get liquidity, an area of vital importance to any bank’s regulatory compliance officer?

You say that “others” played by different rules.

You mean the rules written by members of both parties in Congress over the past three decades?

Why exactly would lenders “sell mortgages to people who couldn’t afford them”, unless they knew they would be bailed out? Why exactly would buyers “buy homes they knew they couldn’t afford” unless they were responding to incentives from Washington?

When people play by the rules and things go bad, is it the players’ fault? Or those who made the rules in the first place?

And yet, you are asking us to believe that this time you’ve got it right. All the hundreds of national regulations designed to “fix” problems of home ownership, from the creation of HUD in 1965 to the Housing and Economic Recovery Act of 2008, those don’t really matter. You’ve got a Homeowners’ Bill of Rights that will finally fix things. Forgive me, Mr. President, but I doubt it.

What you are proposing is not a bill of rights. Rights are things that human beings have simply because they’re human.

Governments don’t grant them, they are instituted to secure them. What you are proposing is a bill of entitlements, a Bill of Good Things To Have.

Mr. President, America is in crisis. We are trillions of dollars in debt, we have made financial promises we cannot keep, and we are at risk of producing the first generation that may not live as well as its parents. To fix this, we do not need more tweaks to failed programs and attempts to buy off interest groups. Including homeowners like me.

We need rules all right, but only the basic ones that all civilized societies have to permit their economies to flourish. We need sound, stable money. We need a government that lives within its means. We need fraud to be punished. We need more freedom to contract.

Canada, according to one prominent think tank, now has more economic freedom than we do. That is unacceptable.

We need the freedom to earn more of our keep, and to keep more of what we earn. And no bailouts for anyone, rich or poor. As you point out, everyone needs to be held responsible for their actions.

In other words, Mr. President, we don’t need yet another Bill of Rights. The first ten amendments of the Constitution do just fine.

What we need, Mr. President, is liberty.

This article originally appeared in the Colorado Springs Gazette’s Point/Counterpoint series February 8, 2012.

Affordable Housing Should Mean a House You Can Afford

Posted on: August 26th, 2010 by admin

By Barry Poulson

Denver Mayor John Hickenlooper recently signed on to “Take Root Denver,” a new affordable housing campaign sponsored by the Federal Home Loan Mortgage Corporation, a “government sponsored enterprise” more commonly known as Freddie Mac. Hickenlooper touts this as a new program to assist residents with calling Denver “home sweet home.”

But the federal mandate to provide “affordable housing” is fundamentally flawed, and a significant cause of the financial crisis. In other words, Mayor Hickenlooper and Freddie Mac have prescribed for Denver more of the same bad medicine that got us into our current financial mess.

Freddie Mac subsidizes and guarantees mortgage loans to individuals who do not qualify for loans from private lenders. These loans have very lax standards. Individuals can qualify for loans making a minimal or zero down payment. They do not need a good credit rating, nor need to earn the minimum level of income that private lenders would require to qualify for the loan.

These lax standards induced many individuals to invest in homes they could not afford, loans that are now in default. The government guarantees and subsidies for these loans also induced many financial institutions to invest in mortgage-based securities at the heart of the financial crisis. The federal mandate that Freddie Mac subsidize and guarantee mortgage loans has saddled the institution, and ultimately American taxpayers, with hundreds of billion of dollars in debt.

The origin of the financial crisis can be traced to government policies encouraging unqualified borrowers to assume risky mortgages, and to government mandates that financial institutions extend loans to these borrowers. The Federal Housing Authority (FHA) loosened standards applied in non-prime lending. Through federal legislation such as the 1977 Community Reinvestment Act (CRA), and agencies such as the Department of Housing and Urban Development (HUD), the government pressured lending institutions to extend credit to unqualified borrowers.

The financial crisis was exacerbated by the quasi-governmental institutions Fannie Mae and Freddie Mac. These institutions created a moral hazard by implicitly guaranteeing mortgages. By the time they collapsed in 2008, they together held $5 trillion in mortgages and mortgage-backed securities. They continue to incur billions in losses, requiring government bailouts.

If mortgage lenders had not been forced to abandon traditional underwriting standards on behalf of an ‘affordable housing’ policy, the financial crisis and taxpayer bailouts would not have occurred. Qualified mortgage borrowers would have purchased homes at competitive market prices. Now all homeowners, including qualified mortgage borrowers, must suffer the consequences of the mortgage meltdown and collapse in home prices.

We must end the myth of “affordable housing.” As economist Thomas Sowell has argued, an affordable house is a house you can afford. This means restoring traditional market criteria for mortgage lending: meeting strict income standards to qualify for a loan, and requiring a minimum down payment from creditworthy borrowers.

Residents will call Denver “home sweet home” when the housing market stabilizes. That will only happen when lending institutions write off mortgage loans in default, when individuals are in homes they can afford, and when housing prices stabilize. The best way to achieve that objective is to return mortgage lending to the private marketplace. In the absence of government subsidies and guarantees, private mortgage lenders have an incentive to lend to creditworthy borrowers, and to require minimum standards for individuals to qualify for these loans.

The same Freddie Mac and Fannie Mae that are implementing the “affordable housing” agenda got us into the housing pickle and financial crisis. They should be gradually phased out of the mortgage market. Critics will argue that private lending institutions are not able to perform the functions of Freddie Mac and Fannie Mae. But that is the point: no lending institution should be promoting mortgage lending to individuals who cannot afford to own a home. The Federal Housing Administration should return to the original role of insuring mortgage loans to low-income borrowers who can meet minimum standards to qualify for such loans.

There is no reason why Denver should be the guinea pig in a repeat of failed housing policies promoted by the Obama administration.

Barry Poulson is a Senior Fellow in Fiscal Policy at the Independence Institute